This project will estimate the effects of vertical integration by acute care hospitals into markets for skilled nursing and home health care on health care practices, costs, and patient health outcomes. It will indicate whether integration leads hospitals to provide patients with a more-efficient or less-efficient mix of acute care, skilled nursing care, and care in the home. In addition, it will identify how Medicare reimbursement policy can be designed to harness the efficiency benefits and avoid the efficiency costs of integration. The project will analyze the consequences of integration for essentially all elderly fee-for-service Medicare beneficiaries admitted to an acute care hospital from 1997-2004. We will focus on illnesses found in the previous literature to put a patient at high risk for need of post-acute care. The specific aims are: (1) to match comprehensive nationwide Medicare data on individual patients' utilization of acute-care, skilled-nursing, and home-health utilization, expenditures, and health outcomes with data on all U.S. hospitals, on all U.S. multi hospital systems, and on other area-level factors affecting treatment decisions; (2) to estimate the determinants of vertical integration by acute care hospitals; (3) to estimate the effect of vertical integration by acute care hospitals on the cost and quality of patient care, holding constant the characteristics of patients, hospitals, and geographic areas; (4) to distinguish the efficiency-enhancing effects of integration from the efficiency-reducing effects; (5) to identify how changes in Medicare reimbursement policy adopted as part of the Balanced Budget Act of 1997 (BBA 1997) and subsequent laws affected both the efficiency-enhancing effects and the efficiency-reducing effects of integration; and (6) to propose new reforms to Medicare reimbursement policy in order to harness the efficiency benefits and avoid the efficiency costs of integration. [unreadable] [unreadable] [unreadable] [unreadable]